U.S. Investigation of Fed Chair Draws Market Attention

The United States Department of Justice opened a criminal investigation into Federal Reserve Chair Jerome Powell, marking an unprecedented confrontation between the executive branch and the central bank. Powell disclosed on January 11, 2026, that the Department of Justice had served the Federal Reserve with grand jury subpoenas related to his June 2025 testimony before the Senate Banking Committee concerning a $2.5 billion renovation of the Fed’s headquarters in Washington, D.C. The Justice Department’s action included threats of criminal indictment, which Powell described as a pretext to exert political pressure to lower interest rates more rapidly than its economic assessments justified.

The renovation project, which includes modernization and safety upgrades to the Eccles Building and adjacent facilities, has been criticized by President Donald Trump for cost overruns, with the administration claiming the project could reach $3.1 billion compared to the Fed’s $2.5 billion estimate. Powell defended the project as necessary for long-term efficiency and safety, and denied allegations of luxury expenditures such as rooftop terraces and premium materials. The investigation followed a referral by Republican Congresswoman Anna Paulina Luna, who accused Powell of perjury and false statements regarding the project’s costs.

Powell, who was appointed by Trump in 2017 and whose term as chair ends in May 2026, publicly stated that the probe was not about the renovation, but about the administration’s attempt to influence monetary policy. He emphasized that the Federal Reserve must continue to set interest rates based on economic evidence rather than political intimidation. Trump denied knowledge of the investigation but reiterated his criticism of Powell’s performance, stating that interest rates were too high and that Powell was not effective in his role.

The confrontation intensified an already strained relationship between Trump and Powell, which had been marked by repeated presidential demands for aggressive rate cuts to stimulate growth and offset the economic effects of new tariffs. Trump’s administration had previously attempted to remove Federal Reserve Governor Lisa Cook over unrelated allegations, a case pending before the Supreme Court. The president also signaled plans to replace Powell with a loyalist, with names such as Kevin Hassett, Kevin Warsh, Christopher Waller, and Rick Rieder reportedly under consideration.

The Justice Department’s move drew bipartisan concern in Congress. Republican Senator Thom Tillis, a member of the Senate Banking Committee, announced he would block any new Federal Reserve nominations until the legal matter was resolved, citing threats to both the Fed’s and the Justice Department’s independence. Democratic Senator Elizabeth Warren accused the administration of attempting a corrupt takeover of the Federal Reserve.

Financial markets reacted with volatility. Gold prices surged to record highs above $4,600 per ounce, and silver rose more than 7 percent, reflecting investor flight to safe assets amid uncertainty. The U.S. dollar fell by its largest margin in three weeks, while stock futures dipped modestly. Despite Powell’s warnings, major U.S. stock indices remained relatively stable, suggesting investors were still assessing the long-term implications.

Former Federal Reserve Chair Janet Yellen described the probe as extremely chilling and warned that it could undermine market confidence in U.S. institutions. Analysts and economists noted that the Fed’s independence has historically been a cornerstone of global financial stability, and any erosion of that autonomy could have far-reaching effects on inflation control, debt management, and the credibility of the U.S. dollar as the world’s reserve currency.

The criminal investigation into Jerome Powell represents a direct challenge to the institutional independence of the U.S. Federal Reserve, a pillar of global economic governance. The Fed’s autonomy in setting interest rates has long been a stabilizing force for the domestic and international markets, ensuring that monetary policy decisions are guided by economic data rather than political expediency. The Trump administration’s use of legal mechanisms to pressure the central bank introduces a precedent that could erode confidence in the management of the world’s largest economy.

At the strategic level, the politicization of the Federal Reserve undermines the credibility of the U.S. dollar as the global reserve currency. The dollar’s dominance depends on investor trust in the impartiality and predictability of U.S. monetary policy. If markets perceive that interest rate decisions are being manipulated for short-term political gain, capital could shift toward alternative currencies or assets such as gold, as evidenced by the record-breaking surge in precious metal prices following the announcement of the probe. This dynamic mirrors patterns seen in emerging markets where executive interference in central banking has historically led to inflationary spirals and capital flight.

The confrontation also carries implications for U.S. domestic governance and the separation of powers. The Department of Justice’s involvement in a dispute over monetary policy blurs the line between legal oversight and political coercion. Congressional reactions from both parties indicate recognition of the potential constitutional crisis: Senator Tillis’s refusal to confirm new nominees and Senator Warren’s accusations of executive overreach underscore the gravity of the situation. The episode may become a defining test of institutional resilience within the U.S. system.

The episode also intersects with broader geopolitical dynamics. The erosion of confidence in U.S. financial governance could accelerate efforts to promote alternatives to the dollar-based system, including digital currencies and bilateral trade settlements in local currencies. Analysts cited in the reporting warned that if the U.S. president succeeds in subordinating the Federal Reserve, it could trigger a long-term shift away from dollar hegemony, similar in scale to the geopolitical realignments following Brexit.

Domestically, the confrontation may constrain the Fed’s ability to respond to economic shocks. With Powell under investigation and the institution under political scrutiny, the central bank may hesitate to adjust rates decisively, increasing the risk of policy paralysis. This could exacerbate inflationary pressures or slow growth, depending on the trajectory of global demand and U.S. fiscal policy.

Ultimately, the investigation into Powell is not merely a legal or administrative matter but a test of the United States’ commitment to institutional independence and the economic governance norms that underpin the global financial order. The outcome will influence U.S. economic stability and the credibility of democratic institutions in managing complex, technocratic systems free from political interference.

- United States Department of Justice

- Federal Reserve System (Board of Governors)

- President Donald Trump and the Executive Office

- Jerome Powell, Federal Reserve Chair

- U.S. Congress (Senate Banking Committee)

- Global financial markets and institutional investors